What price economic growth and progress? Taylorism revisited

Older people remember the Charlie Chaplin film, “Modern Times”, Chaplin emerging from a manhole with a red flag to unknowingly lead a march of striking workers. It is easy to think we are not much further advanced in our understanding of industrial relations, getting a productive and satisfying workplace and intersection of work with life.

In July the Business Council of Australia (BCA) released a report commissioned from Access Economics. It asserted that the ALP Industrial Relations Policy had negative economic consequences: the interventions proposed would mean significant losses of jobs. Access Economics’ Report assumes that present economic wellbeings are due to the application of recent workplace reforms including particularly individual agreements on wages. A key paragraph in AE’S report says:

“Indeed, economists are firmly of the view that efficiency is maximised with appropriate micro (and, to a lesser extent, macro) policies including a flexible labour market. Whilst the current Australian workplace relations system is working well… the IMF and others have suggested improvements to Australia’s labour market flexibility that would further benefit Australian living standards. These suggestions for reform, if implemented, would take the current system in the opposite direction to that proposed by the ALP workplace relations platform.

“Greater flexibility in workplace arrangements allows for a greater supply of flexible jobs from employers (where there may be no job otherwise available). That is vital, as the demand for such jobs is growing, as Australians attempt to gain a better balance of family, education and other commitments. This flexibility is also important for those easing themselves into retirement or caring for ageing parents.”

Chairman of the BCA’s Employment and Participation Taskforce Michael Chaney (Managing Director of Wesfarmers and just appointed to the Board of the National Australia Bank of which he is to become Chair in September 2005) lauded the AE Report’s conclusions. “The research reveals the major risk from implementing such a platform will be a weakening in the productivity growth achieved by Australia in the last 10 years.” The AE report concludes that the re-empowerment of the Industrial Relations Commission and proposed changes to the Workplace Relations Act threaten to reverse important cultural and attitudinal changes that have enabled employees and local workplaces to be more accountable for performance, productivity and rewards.

Mr Chaney continued, “Moving the Federal system closer to that operating in the States will truncate the flexibility available to employees and employers – in the same way that abolishing AWAs will limit opportunities for employees and employers.”

But had he read the report?

I want to focus on two issues. First, does the data in the Access Economics Report actually support the assertions it makes. Second, what do we know about the way workplace conditions influence firm performance.

Do the data use by Access Economics support the conclusion?

The short answer is no. This is just as important as the arguments about what it is that does lead to productivity because it would suggest, yet again, that there are some serious flaws in the way that political leaders and business people consider evidence.

Two graphs in Access Economics’ report purport to show a relationship between productivity growth on the one hand and flexible contracts (positive) and reliance on awards (negative) on the other. In both cases there is in fact no statistically significant correlation between the variables. And in both cases the regression line does not have a statistically acceptable level of significance.

In the tables as in the graphs AE promotes a relationship between reform and productivity growth. Thus, a table listing annual growth in GDP per head in different countries is headed “reform has seen growth in Australian living standards rebound” and a graph of the data is similarly labelled. Australia’s performance has varied but the table shows little difference from the other countries except for Ireland and Finland, differences that are not explained. What is their IR regime? To suppose that the only, or even principal, reason for productivity variation is wage flexibility does seem somewhat simplistic considered across a wide range of industries, to put it mildly.

These recent statements of the Business Council can be contrasted with previous BCA positions. Four years ago, Campbell Anderson, then President of the BCA, launching “A Unitary Industrial Relations System: Unfinished Business of the 20th Century” in November 2000, said, “The days of master/servant relationships are long gone and the boundaries between managers and other employees are increasingly blurred. Emphasis is increasingly being placed on teamwork, workplace cultures with mutual trust, and the alignment of personal and organisational objectives and values.”

A report commissioned by BCA and conducted for “acirrt” (based at the University of Sydney) by Daryll Hull and Vivienne Read in 2003 found 15 “drivers” for exemplary workplaces including quality of working relationships, leadership, participation in decisions and clear values.

Other recent reports on the workplace and employees and bosses in Australia have found the same. “Management styles and bosses' actions are out of touch with the espoused values of most organisations” said Human Synergistics’ in reporting their survey of more than 130,000 employees. Hewitt Associates’ 2003 “Best Employers” study found the primary factors contributing to perceptions of good employers to include trust, communication, passionate concern for employees, provision of different work experiences, investment in employee learning and development, employee recognition and performance management

How many of the journalists and editors commenting on this subject understood the Access Economics report? The Financial Review of August 9, 2004 said, “Workplace reform remains the key to unlocking productivity from all other sources.” A month earlier they said (July 26, 2004), “The unions are queuing to fatten up awards again under Labor's back-to-the-1970s policies.” In The Australian of July 23, 2004 Brad Norrington revealed, “Labor is exposed to the charge that it is captive to the interests of a struggling union movement wanting to reclaim a position of power and privilege under a prescriptive, centralised system of labour market regulation.” He asserted that Craig Emerson’s policy “adds fuel to claims in an Access Economics report … that the party's policies already present real threats to continuing economic and job growth.” Some letter writers were similarly well informed! Is the question whether the last fifteen years has seen higher productivity? Hardly, since the figures are clear on that. The question is what has significantly contributed to the growth.

Professor Richard Mitchell (Centre for Employment and Labour Relations Law, The University of Melbourne), commenting in The Australian 21 July on Paul Kelly’s article (17 July) about Labor’s IR policy, pointed out, “Most of the evidence suggests the higher productivity is due to the fact that most people are working harder, working longer hours, doing more tasks, and have less control over their working lives. What Labor can do is not reverse many of the labour market measures of the 1990s, but make them work better, so that flexibility is based on innovative workplace change, and better work/life balance, rather than on greater exploitation.”

Fred Argy (author of “Where to from Here? Australian Egalitarianism Under Threat”, Allen and Unwin, Sydney 2003), writing in the same issue of The Australian noted, as have many, that polls show more concern for quality of life over economic and wage growth. Are governments being anti-democratic in consistently refusing to put in place policies that address what voters clearly want?

There are numerous studies of the impact of hard economic/IR policy and the mythology of its link with higher productivity. When the Business Council of Australia launched the Access Economics report they proclaimed that they had asked a consulting organization to undertake this policy examination so that they would have an independent view. Will Hutton’s “The World We’re In” (Little, Brown, 2002), reviewed for the Guardian newspaper by EU commissioner Chris Patten cites a huge amount of evidence to refute the claim that productivity growth in the US is higher than that of developed European countries.

Mary Gregory of Oxford University (Australian Economic Review vol31/4, 1998) examined the Thatcher government’s legislation curbing unions. It contributed only a little to productivity gains but there was “no clear evidence on employment, investment, profitability or wage premia”. She continued, “The most marked features of the more flexible labour markets are the growth of part-time and temporary work, while job insecurity has become a common perception. The most striking development is the growth in earnings inequality, in part reflecting the weakening of collective bargaining.”

What do we know more generally about firm performance and employment and wage setting arrangements that lead to increases in productivity? Study after study reported in widely respected journals make clear that concern for employees is what makes the difference. Downsizing, paying lowest possible wages, individual contracts in which the employee is always at a disadvantage, do not. A focus on efficiency means least outlay on employees, including minimum training. Downsizing and restructuring, like corporatisation, mergers and acquisitions have failed to bring benefits.

There is very good evidence as to what contributes to long-term firm performance. A study of 500 manufacturing companies world wide by Thomas Hout and John Carter (reported by Joann Lublin in the Wall Street Journal 20 July 1993) found the best companies to triumph by fostering co-operation among employees: what distinguished the leaders from the laggards was the way decisions were made, the way people worked together and the way leadership was practiced. Jeffrey Pfeffer (in the journal Organisational Dynamics in 1996) reporting studies of numerous companies identified the best performers as typified by contingent compensation, highly selective recruitment, substantial investment in training, employee participation, higher wages and reducing status differences. Nitin Nohria and colleagues (in the Harvard Business Review, of just last year) reported a five-year study of best performing firms: empowering employees and managers to make independent decisions and to find ways to improve operations including their own are vital.

Leadership is critical! James Collins and Jerry Porras in their celebrated work “Built to Last” identified a strong culture and recruitment of leaders from within the firm (who had a good understanding of the business and the industry) as key factors. In a subsequent work “From Good to Great”  Collins identified features of successful leaders as devoted to the company, not themselves, having a down-to-earth, pragmatic, committed-to-excellence process. Something like a hundred different studies of transformational leadership have identified, amongst other features trust and ethics, vision, high standards, thinking about new perspectives as key characteristics of successful leaders. They deal with others as individuals and put efforts into advice and coaching.

It is tempting to regard the expressions of opinion by employees about their bosses as just their opinions. The trouble is the same factors emerge from looking at high performing firms and asking about their leaders.

Those on the right are trying to take industrial relations back to the times of Taylorism where there was virtually no control by employees over their wages and conditions, all in the name of economic growth and progress. It reflects the violently anti-union stance of the United States depicted in “On the Waterfront”. It has nothing to do with productivity or greater economic benefits for all. No more than do vast salaries and stock options for executives, the behaviour of the Enrons, Tychos and Sunbeams of this world. And it won’t work because the more expensive supervisory and management time is taken up in trying to get workers to behave properly. If we want the particular outcomes we have to work at getting relevant values shared. Unfortunately, this seems too difficult a position for some.

The assertions of business are an excuse. An excuse for a lazy way out of doing the hard yards of genuine leadership and management, of organisational reform and the long and difficult road of working with people. Rather than take the path which careful examination clearly shows produces results in the long-term it’s easier to cut wages, restructure, and downsize, all under the guise of workplace flexibility. Such efforts satisfy the “market”, lifts stock price (in the short-term) and thereby enriches the executives with their stock options. But it doesn’t improve business.

Considerations of happiness and the work-life interface show clearly that people want considerable adjustments to the present casualisation and unpaid overtime provisions of worklife and are prepared to forego some wage adjustments and pay higher taxes to achieve it. A score of economic writers like Hugh Stretton, Fred Argy, Richard Mitchell and journalists like Ross Gittins make similar claims. Democracy demands attention to such views. Should governments allow pressure groups like Chambers of Commerce and Industry with their ostrich-like views to restrain them? There is little real thinking in the neo-liberal positions. If we want a sensible debate on policy that the leaders of political parties and political and economic journalists constantly demand, then we need scrutiny based on doubt, not slavish following of dogma dressed up as policy and commentary.